Author

Robert Bruce, journalist and accounting commentator

There are times when routines and behaviours evolve into a complete impasse and are no longer producing results. What we need to do is hover above and see what our overview tells us.

An old friend was on a trip to Beijing a few weeks ago and reported some startling developments. Never mind that in the huge car park where he and a business contact left their car there was a recharger beside every car-parking space. The real eye-opener came on their journey through the teeming city streets.

They came to the biggest gyratory system he had ever seen. It was on a scale of, for example, the Etoile in Paris, and then many times more. It was a rolling maelstrom of cars. His driver then startled him by taking his hands off the wheel as the car headed into the fray. Under its own volition it threaded its way through the chaos, searching for the correct exit and then, taking it, made its way into the clear and headed for its destination. Only then did the driver resume control.

Age-old arguments

If only this could be done with other convoluted dances of complexity. A simple goal could be achieved where previously an entangled chaos seemed insuperable. The current arguments about the audit of small companies come to mind. They have been raging for what now seems like eons.

People can tend not to see audit as a benefit at all but as a grinding necessity

At the moment, bright and innovative companies feel that the world is against them. Companies with less than £10.2m in revenue and fewer than 50 staff may qualify for an exemption, but they may actually want to have an audit. It might impress investors and assure them that their investment is in good hands. They might feel that an audit would open doors to happier shareholders or make it easier to raise money from their bankers and investors.

On the other hand, companies might feel that auditors would charge higher fees and wrap them in red tape. But without an audit they may feel that their ability to expand and invest in innovation is constrained. And people can tend not to see audit as a benefit at all and just see it as a grinding necessity.

This is where the complexity, as dense and unpredictable as a Beijing traffic system, becomes a deterrent in peoples’ minds rather than a lightbulb moment leading to bright solutions.

Vital role

And we are talking about a huge chunk of the UK economy. The latest Financial Reporting Council consultation document on the subject points out that there are just under 5.5 million SMEs in the private sector with a shared turnover of just over 52% of UK business and employing north of 16 million people.

‘The focus of the rules should be on the complexity of an entity rather than on size’

‘SMEs,’ says the FRC, ‘play a vital role in driving economic growth across all regions and communities in the UK through innovation and job creation’. What is needed is clarity. In that swarming mass of SMEs, some will be companies doing simple things. Others will be astonishingly complex.

ACCA’s response is simple: ‘The focus of the rules should be on the complexity of an entity rather than on size.’ That would help make life simpler. It would also be a good thing if everyone followed the International Auditing and Assurance Standards Board’s rules on this. Though you can understand people losing the will to live when they reach for something called the ‘International Standard on Auditing for Audits of Financial Statements of Less Complex Entities’, or in its catchy short form: ISA for LCE.

It doesn’t make the heart sing. But retaining an overview rather than being diverted by the detail is the answer.

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